Feb. 20 (Bloomberg) -- The Czech Republic said it raised 2
billion euros ($2.7 billion) in its first foreign bond sale in 1
1/2 years as yields approach a three-month low after steps to
cut the budget deficit and an easing in Europe’s debt crisis.

The notes due in May 2022 were priced to yield 160 basis
points more than the benchmark mid-swap rate, down from the
original guidance of 170, said a banker who couldn’t be named
because the terms are private. That compares with a 105 basis-point spread in September 2010, when the country raised the same
amount from April 2021 debt.

The government is reviving the sale after hiring bankers
last July as speculation that Greece will avoid default and the
European Central Bank’s purchases of euro-area debt helped cut
the yield on the Czech 2021 Eurobonds to 3.69 percent by 6:11
p.m. in Prague, from 4.66 percent at the end of November. The
yield reached a three-month low of 3.66 percent on Feb. 14 after
Finance Minister Miroslav Kalousek on Feb. 1 pledged further
spending cuts needed to meet a deficit-reduction target.

“The Czech Republic’s orthodox fiscal management does
remain a key strength when compared with other countries in the
region,” David Petitcolin, a London-based emerging-market
analyst at Royal Bank of Scotland Group Plc, wrote in a Feb. 16
report, before the Eurobond offering was started.

Deficit Crisis

Barclays Capital, Ceska Sporitelna AS, Societe Generale SA
and UniCredit SpA are managing the deal. Demand was 1.5 billion
euros more than the amount sold, the Czech Finance Ministry said
today in an e-mailed statement.

The ministry put the sale on hold last year as concern
increased the euro region might not contain its deficit crisis,
driving up borrowing costs across the continent. The region is
the main buyer of Czech exports, which account for about 70
percent of the country’s gross domestic product.

Czech government debt at 42 percent of GDP compares with 57
percent in Poland, 77 percent in Hungary and more than 80
percent in Germany and France, European Commission estimates for
2012 show. Deposits at Czech banks covered 137 percent of loans
at the end of 2010, the highest level in emerging Europe and
compared with 93 percent in Poland and 73 percent in Hungary,
according to data posted on the Czech National Bank’s website.

‘Low Indebtedness’

“The Czech Republic offers an internally and externally
well-balanced economy with low indebtedness -- private and
public -- and a sound banking sector,” Anne-Francoise Bluher in
Prague and Guillaume Salomon, SocGen analysts in London, wrote
in a report to clients today. “The strong Czech fundamental
backdrop makes us believe that any negative contagion of Czech
financial markets and credit spreads should be temporary.”

The cost to insure Czech bonds for five years with credit-default swaps fell to 136 basis points today, a three-month low,
from as much as 202 on Nov. 25. The contracts, which decline as
perceptions of creditworthiness improve, traded below those for
higher-rated Austria and France at 165 and 176, respectively,
according to data compiled by CMA, a unit of CME Group Inc.